Methods of entering international markets

Question 1

Export

Answer 1

Produce domestically and sell abroad

direct; markets and sells the product on its own

indirect; business sells products to agents who have knowledge of local markets

Samsung

Advantages; lower risk (little investment), fast entry, uses existinf facilities (increasing economies of scale)

Disadvantages; trade barriers, transport costs, limited access

Question 2

Licensing

Answer 2

Giving rights to a foreign business to sell your product

McDonald’s (franchise)
Coca Cola ( let them use name and syrup formula)

Advantages; lower risk (little investment), fast entry, uses existing facilities (increases economies of scale)

Disadvantages; lack of control over marketing and customer service, licensee could become competitor

Question 3

Alliances

Answer 3

Partnering up with a foreign business to share risk and profit (international merger)

Advantages; synergies, less investment than going alone, potential to learn

Disadvantages; difficult to manage, less control, more risky, partner could become competitor

Question 4

Direct investment

Answer 4

Invest all aspects of the business abtoad including production

Adidas

Becomes a multinational company

Advantages; knowledge of local market, avoid trade barriers, retain knowledge of production

Disadvantages; high risk (required huge investment), may fail to understand change in needs

Question 5

Multinational companies

Answer 5

Large businesses that operate in a number of different countries

Either produce abroad (Coca Cola) or have sales outlets (Mcdonald’s)

Advantages; economies of scale and scope, strong brand recognition, market dominance

Need to find a balance between local responsiveness and cost reductions

Question 6

Factors to consider when assessing a country’s attractiveness

Answer 6

Size of market and potential for GDP growth

Disposable income

Competitive rivalry within a potential market

Infrastructure (ease of getting products across the country - urban v rural)

Political stability (any corruption?)

Ease of doing business (similarity to current market, ease of access)

Availability of resources

Question 7

Factors to consider when assessing a country as a production location

Answer 7

Cost of production (Bangladesh and Primark)

Skills and availability of labour (need for IT, etc)

Infrastructure (transportation of goods)

Government incentives (is there tax relief like in Croatia)

Natural resources

Question 8

Pressures for internationalisation

Answer 8

Growth
- pressure from shareholders to increase profitability for higher dividends

Lower costs
- lower labour costs abroad could lead to pressure to use cheap labour

Proximity to labour/resources

Declining home market
- to continue to g
row when domestic market is saturated
- KitKat expanded to Japan as market share was declining in the UK

Question 9

Strategies based on pressure for local responsiveness v reducing costs???

Answer 9

High pressure for LR, high pressure to RC
- Ford, Google
- adapt product to meet local needs while having economies of scale
- should decentralise some functions such as marketing and R+D while keeping finance centralised

Low pressure for LR and low pressure to RC
- Starbucks
- local branches are centralised
- R+D is centralised while the HR is decentralised
- no pressure to reduce production costs

Question 10

Glocalisation

Answer 10

adapting products to meet cultural differences in countries such as McDonald’s

Question 11

Impact on internationalisation

Answer 11

Marketing
- understand cultural difference
- require local expertise for effective promotion

HR
- require recruitment of local staff for their knowledge of the market

Finance
- exporting is low investment but direct investment is high
- need to understand new tax laws
- aim to maintain cashflows with different currencies

Operations
- transportation and distribution becomes a bigger issue
- beed to manage product varieties for each local needs
- harder to have economies of scale